10-Q 1 tfi1q201610q.htm 10-Q 10-Q



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
 
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly period ended March 31, 2016
OR
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from            to            
Commission File Number: 001-33549
Tiptree Financial Inc.
(Exact name of Registrant as Specified in Its Charter)
Maryland
 
38-3754322
(State or Other Jurisdiction of
 
(IRS Employer
Incorporation of Organization)
 
Identification No.)
 
 
 
 
 
 
780 Third Avenue, 21st Floor, New York, New York
 
10017
(Address of Principal Executive Offices)
 
(Zip Code)
(212) 446-1400
(Registrant’s Telephone Number, Including Area Code)
Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨                    Accelerated filer x
Non-accelerated filer ¨                    Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  ¨    No  x
As of May 4, 2016, there were 34,900,783 shares, par value $0.001, of the registrant’s Class A common stock outstanding and 8,049,029 shares, par value $0.001, of the registrant’s Class B common stock outstanding.







Tiptree Financial Inc.
Quarterly Report on Form 10-Q
March 31, 2016
Table of Contents



ITEM
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I. FINANCIAL INFORMATION

Forward-Looking Statements

Except for the historical information included and incorporated by reference in this Quarterly Report on Form 10-Q, the information included and incorporated by reference herein are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements provide our current expectations or forecasts of future events and are not statements of historical fact. These forward-looking statements include information about possible or assumed future events, including, among other things, discussion and analysis of our future financial condition, results of operations and our strategic plans and objectives. When we use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “seek,” “may,” “might,” “plan,” “project,” “should,” “target,” “will,” or similar expressions, we intend to identify forward-looking statements.

Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, many of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those described in the section entitled “Risk Factors” in our Annual Report on Form 10-K.
 
The factors described herein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements.  Other unknown or unpredictable factors also could affect our forward-looking statements. Consequently, our actual performance could be materially different from the results described or anticipated by our forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by the applicable law, we undertake no obligation to update any forward-looking statements.

Note to Reader

In reading this Quarterly Report on Form 10-Q, references to:

“1940 Act” means the Investment Company Act of 1940, as amended.
“Administrative Services Agreement” means the Administrative Services Agreement between Operating Company (as assignee of TFP) and BackOffice Services Group, Inc., dated as of June 12, 2007.
“AUM” means assets under management.
“Care” means Care Inc. and Care LLC, collectively.
“Care Inc.” means Care Investment Trust Inc. prior to the Contribution Transactions.
“Care LLC” means Care Investment Trust LLC.
“CFPB” means the Consumer Financial Protection Bureau.
“CLOs” means collateralized loan obligations.
“Code” means the Internal Revenue Code of 1986, as amended.
“Consolidated CLOs” means Telos 5 and Telos 6.
“Contribution Transactions” means the closing on July 1, 2013 of the transactions pursuant to the Contribution Agreement by and between the Company, Operating Company and TFP, dated as of December 31, 2012.
“Dodd-Frank Act” means the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“EBITDA” means earnings before interest, taxes, depreciation and amortization.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Fortress” means Fortress Credit Corp., as administrative agent, collateral agent and lead arranger, and affiliates of Fortress that are lenders under the Credit Agreement among the Company, Fortress and the lenders party thereto.
“Fortegra” means Fortegra Financial Corporation.
“GAAP” means U.S. generally accepted accounting principles.
“Gramm-Leach-Bliley Act” means the Gramm-Leach-Bliley Act of 1999.
“Greenfield” means Greenfield Holdings, LLC.
“HIPAA” means the Health Insurance Portability and Accountability Act of 1996.
“Luxury” means Luxury Mortgage Corp.
“Mariner” means Mariner Investment Group LLC.
“MCM” means Muni Capital Management, LLC.
“MFCA” means Muni Funding Company of America LLC.
“NAIC” means the National Association of Insurance Commissioners.
“NPL” means nonperforming residential real estate mortgage loans.
“NPPF I” means Non-Profit Preferred Funding Trust I.
“Operating Company” means Tiptree Operating Company, LLC.
“PFAS” means Philadelphia Financial Administration Services Company, LLC.
“PFG” means Philadelphia Financial Group, Inc.
“RAIT” means RAIT Financial Trust.
“Reliance” means Reliance First Capital, LLC.
“REO” means real estate owned.
“Royal” means Royal Senior Care Management LLC.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended.
“Seneca” means Seneca Mortgage Servicing LLC.
“Siena” means Siena Capital Finance LLC.
“Star Asia Entities” means collectively Star Asia Finance, Limited, Star Asia Opportunity, LLC, Star Asia Opportunity II, LLC and Star Asia SPV, LLC.
“Synovus” means Synovus Bank.
“TAMCO” means Tiptree Asset Management Company, LLC.
“TDH” means Tiptree Direct Holdings LLC.
“Telos” means Telos Asset Management, LLC.
“Telos 1” means Telos CLO 2006-1, Ltd.
“Telos 2” means Telos CLO 2007-2, Ltd.
“Telos 3” means Telos CLO 2013-3, Ltd.
“Telos 4” means Telos CLO 2013-4, Ltd.
“Telos 5” means Telos CLO 2014-5, Ltd.
“Telos 6” means Telos CLO 2014-6, Ltd.
“Telos 7” means Telos CLO 2016-7, Ltd.
“TFP” means Tiptree Financial Partners, L.P.
“Tiptree”, the “Company”, “we”, “its”, “us” and “our” means, unless otherwise indicated by the context, Operating Company and its consolidated subsidiaries, together with the standalone net assets held by Tiptree Financial.
“Tiptree Financial” or “TFI”, means Tiptree Financial Inc.
“Transition Services Agreement” means the Transition Services Agreement among TAMCO, Tricadia and Operating Company (as assignee of TFP), dated as of June 30, 2012.
“Tricadia” means Tricadia Holdings, L.P.
“Westside Loan” means that certain loan by an affiliate of Care which was secured by skilled nursing facilities as well as collateral relating to assisted living facilities and a multifamily property.



F-1



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)

Item 1. Financial Statements (Unaudited)
 
As of

March 31, 2016
 
December 31, 2015
Assets
(Unaudited)
 

Cash and cash equivalents
$
43,225

 
$
69,400

Restricted cash
21,951

 
18,778

Securities, available for sale (cost or amortized cost: $182,821 at March 31, 2016 and $185,046 at December 31, 2015)
185,092

 
184,703

Loans, at fair value
325,912

 
273,559

Loans owned, at amortized cost, net
58,897

 
52,531

Mortgage loans held for sale, at fair value (pledged as collateral: $84,745 at March 31, 2016 and $112,743 at December 31, 2015)
93,532

 
120,836

Notes receivable, net
21,532

 
21,696

Accounts and premiums receivable, net
78,134

 
57,056

Reinsurance receivables
373,854

 
352,926

Deferred acquisition costs
56,185

 
57,858

Real estate, net
254,072

 
203,961

Goodwill and intangible assets, net
184,021

 
186,107

Other receivables
69,919

 
62,247

Other assets
111,165

 
104,500

Assets of consolidated CLOs
722,418

 
728,812

Total assets
$
2,599,909


$
2,494,970

Liabilities and Stockholders’ Equity
 
 
 
Liabilities
 
 
 
Debt, net
$
713,071

 
$
666,952

Unearned premiums
404,100

 
389,699

Policy liabilities and unpaid claims
89,927

 
80,663

Deferred revenue
58,646

 
63,081

Reinsurance payables
71,932

 
65,840

Commissions payable
15,358

 
14,866

Deferred tax liabilities, net
19,069

 
22,699

Other liabilities and accrued expenses
123,342

 
94,420

Liabilities of consolidated CLOs
694,012

 
698,316

Liabilities held for sale and discontinued operations
734

 
740

Total liabilities
$
2,190,191

 
$
2,097,276

Commitments and contingencies (Note 24)

 

Stockholders’ Equity
 
 
 
Preferred stock: $0.001 par value, 100,000,000 shares authorized, none issued or outstanding
$

 
$

Common stock - Class A: $0.001 par value, 200,000,000 shares authorized, 34,914,772 and 34,899,833 shares issued and outstanding, respectively
35

 
35

Common stock - Class B: $0.001 par value, 50,000,000 shares authorized, 8,049,029 and 8,049,029 shares issued and outstanding, respectively
8

 
8

Additional paid-in capital
296,531

 
297,063

Accumulated other comprehensive income (loss), net of tax
1,277

 
(111
)
Retained earnings
20,522

 
15,845

Total stockholders’ equity to Tiptree Financial Inc.
318,373

 
312,840

Non-controlling interests (including $72,721 and $69,278 attributable to Tiptree Financial Partners, L.P., respectively)
91,345

 
84,854

Total stockholders’ equity
409,718

 
397,694

Total liabilities and stockholders’ equity
$
2,599,909

 
$
2,494,970

See accompanying notes to consolidated financial statements.

F-2



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Statements of Income (Loss) (Unaudited)
(in thousands, except share data)



Three Months Ended March 31,

2016

2015
Revenues:
 
 
 
Net realized and unrealized gains (losses)
$
6,177

 
$
(98
)
Interest income
7,685

 
2,883

Service and administrative fees
30,310

 
21,927

Ceding commissions
10,703

 
9,937

Earned premiums, net
44,615

 
37,353

Gain on sale of loans held for sale, net
13,515

 
2,731

Loan fee income
2,334

 
1,399

Rental revenue
12,724

 
9,369

Other income
3,743

 
3,562

Total revenues
131,806

 
89,063

 
 
 
 
Expenses:
 
 
 
Interest expense
6,480

 
5,129

Payroll and employee commissions
30,608

 
20,341

Commission expense
33,038

 
16,528

Member benefit claims
5,750

 
7,579

Net losses and loss adjustment expense
17,948

 
12,450

Professional fees
7,362

 
4,628

Depreciation and amortization
8,377

 
15,464

Acquisition and transaction costs
383

 
1,349

Other expenses
17,990

 
11,144

Total expenses
127,936

 
94,612

 
 
 
 
Results of consolidated CLOs:
 
 
 
Income attributable to consolidated CLOs
7,677

 
9,050

Expenses attributable to consolidated CLOs
6,572

 
9,361

Net income (loss) attributable to consolidated CLOs
1,105

 
(311
)
Income (loss) before taxes from continuing operations
4,975

 
(5,860
)
Less: provision (benefit) for income taxes
(2,439
)
 
(1,496
)
Income (loss) from continuing operations
7,414

 
(4,364
)
 
 
 
 
Discontinued operations:
 
 
 
Income from discontinued operations, net

 
2,345

Discontinued operations, net

 
2,345

Net income (loss) before non-controlling interests
7,414

 
(2,019
)
Less: net income (loss) attributable to non-controlling interests - Tiptree Financial Partners, L.P.
2,629

 
(860
)
Less: net (loss) attributable to non-controlling interests - Other
(770
)
 
(180
)
Net income (loss) available to common stockholders
$
5,555

 
$
(979
)
 
 
 
 
Net income (loss) per Class A common share:
 
 
 
Basic, continuing operations, net
$
0.16

 
$
(0.08
)
Basic, discontinued operations, net

 
0.05

Basic earnings per share
0.16

 
(0.03
)
 
 
 
 
Diluted, continuing operations, net
0.16

 
(0.08
)
Diluted, discontinued operations, net

 
0.05

Diluted earnings per share
$
0.16

 
$
(0.03
)
 
 
 
 
Weighted average number of Class A common shares:
 
 
 
Basic
34,976,485

 
32,138,455

Diluted
35,084,505

 
32,138,455

See accompanying notes to consolidated financial statements.

F-3



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)



 
Three Months Ended March 31,
 
2016
 
2015
 
 
 
 
Net income (loss) before non-controlling interests
$
7,414

 
$
(2,019
)
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
Unrealized gains (losses) on available-for-sale securities:
 
 
 
Unrealized holding gains arising during the period
2,659

 
1,647

Related tax (expense)
(938
)
 
(585
)
Reclassification of (gains) included in net income
(57
)
 
(15
)
Related tax expense
20

 
5

Unrealized gains on available-for-sale securities, net of tax
1,684

 
1,052

 
 
 
 
Interest rate swap (cash flow hedge):
 
 
 
Unrealized (loss) on interest rate swap
(136
)
 
(234
)
Related tax benefit
47

 
82

Reclassification of (gains) losses included in net income
(319
)
 
281

Related tax expense (benefit)
112

 
(98
)
Unrealized (loss) gain on interest rate swap from cash flow hedge, net of tax
(296
)
 
31

 
 
 
 
Other comprehensive income, net of tax
1,388

 
1,083

Comprehensive income
8,802

 
(936
)
Less: net income (loss) attributable to non-controlling interests - Tiptree Financial Partners, L.P.
2,629

 
(860
)
Less: net (loss) attributable to non-controlling interests - Other
(770
)
 
(180
)
Total comprehensive income available to common stockholders
$
6,943

 
$
104























See accompanying notes to consolidated financial statements.

F-4





TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(in thousands, except shares)




 
Number of Shares
 
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Class A
 
Class B
 
Class A
 
Class B
 
Additional paid in capital
 
Accumulated
other
comprehensive
income (loss)
 
Retained
earnings
 
Total stockholders’ equity to Tiptree Financial Inc.
 
Non-controlling
interests - Tiptree Financial Partners, L.P.
 
Non-controlling
interests - Other
 
Total stockholders' equity
Balance at December 31, 2015
34,899,833

 
8,049,029

 
$
35

 
$
8

 
$
297,063

 
$
(111
)
 
$
15,845

 
$
312,840

 
$
69,278

 
$
15,576

 
$
397,694

Stock-based compensation to directors, employees and other persons for services rendered
163,529

 

 

 

 
1,241

 

 

 
1,241

 

 

 
1,241

Other comprehensive income, net of tax

 

 

 

 

 
1,134

 

 
1,134

 
254

 

 
1,388

Non-controlling interest contributions

 

 

 

 

 

 

 

 

 
4,134

 
4,134

Non-controlling interest distributions

 

 

 

 

 

 

 

 
(201
)
 
(264
)
 
(465
)
Shares purchased under stock purchase plan
(148,590
)
 

 

 

 
(851
)
 

 

 
(851
)
 

 

 
(851
)
Net changes in non-controlling interest

 

 

 

 
(922
)
 
254

 

 
(668
)
 
761

 
(52
)
 
41

Dividends declared

 

 

 

 

 

 
(878
)
 
(878
)
 

 

 
(878
)
Net income (loss)

 

 

 

 

 

 
5,555

 
5,555

 
2,629

 
(770
)
 
7,414

Balance at March 31, 2016
34,914,772

 
8,049,029

 
$
35

 
$
8

 
$
296,531

 
$
1,277

 
$
20,522


$
318,373


$
72,721


$
18,624


$
409,718











See accompanying notes to consolidated financial statements.

F-5



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)


 
Three months ended March 31,
 
2016
 
2015
 
 
 
 
Operating activities:
 
 
 
Net income (loss) available to common stockholders
$
5,555

 
$
(979
)
Net income attributable to non-controlling interests - Tiptree Financial Partners, L.P.
2,629

 
(860
)
Net (loss) attributable to non-controlling interests - Other
(770
)
 
(180
)
Net income
7,414

 
(2,019
)
Discontinued operations, net

 
(2,345
)
Adjustments to reconcile net income to net cash provided by operating activities from continuing operations:
 
 
 
Net realized and unrealized (gain) loss
(6,177
)
 
98

Net unrealized loss (gain) on interest rate swaps
1,416

 

Change in fair value of contingent consideration
(161
)
 

Non cash compensation expense
388

 
107

Amortization/accretion of premiums and discounts
332

 
683

Depreciation and amortization expense
8,377

 
15,464

Provision for doubtful accounts
504

 
65

Amortization of deferred financing costs
445

 
343

(Gain) on sale of loans held for sale
(13,515
)
 
(2,731
)
Deferred tax (benefit)
(3,642
)
 
(4,875
)
Changes in operating assets and liabilities:
 
 
 
Mortgage loans originated for sale
(317,808
)
 
(161,767
)
Proceeds from the sale of mortgage loans originated for sale
357,439

 
141,561

(Increase) decrease in accounts and premiums receivable
(21,078
)
 
(12,416
)
(Increase) decrease in reinsurance receivables
(20,928
)
 
(11,342
)
(Increase) decrease in deferred acquisition costs
1,673

 
(19,208
)
(Increase) decrease in other receivables
(7,672
)
 
(1,175
)
(Increase) decrease in other assets
(1,076
)
 
(5,526
)
Increase (decrease) in unearned premiums
14,401

 
7,230

Increase (decrease) in policy liabilities
9,264

 
2,705

Increase (decrease) in deferred revenue
(4,696
)
 
12,990

Increase (decrease) in reinsurance payable
6,092

 
20,824

Increase (decrease) in commissions payable
492

 
(3,033
)
Increase (decrease) in other liabilities and accrued expenses
(1,708
)
 
(7,595
)
Operating activities from CLOs
2,831

 
10,697

Net cash provided by (used in) operating activities - continuing operations
12,607

 
(21,265
)
Net cash (used in) provided by operating activities - discontinued operations
(6
)
 
30,950

Net cash provided by operating activities
12,601

 
9,685

Investing Activities:
 
 
 
Purchases of investments
(57,972
)
 
(13,466
)
Proceeds from sales and maturities of investments
36,768

 
12,106

(Increase) decrease in loans, net
(6,406
)
 
(7,188
)
Purchases of real estate capital expenditures
(519
)
 
(590
)
Purchases of corporate fixed assets
(155
)
 
(866
)
Proceeds from notes receivable
7,951

 
8,146

Issuance of notes receivable
(8,251
)
 
(8,284
)
(Increase) decrease in restricted cash
(3,173
)
 
764

Business and asset acquisitions, net of cash and deposits
(52,729
)
 
(81,710
)
Distributions from equity method investments

 
2,275

Deconsolidation of consolidated CLOs

 
80

Investing activities from CLOs
(481
)
 
15,205

Net cash (used in) investing activities - continuing operations
(84,967
)
 
(73,528
)
Net cash (used in) investing activities from discontinued operations

 
(1,738
)
Net cash (used in) investing activities
(84,967
)
 
(75,266
)
 
 
 
 

F-6                    (continued)

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(in thousands)


 
Three months ended March 31,
 
2016
 
2015
Financing Activities:
 
 
 
Non-controlling interest contributions
1,914

 
2,218

Non-controlling interest distributions
(465
)
 
(70
)
Change in non-controlling interest
41

 
(3,120
)
Payment of debt issuance costs
(433
)
 
(839
)
Proceeds from borrowings and mortgage notes payable
406,357

 
256,827

Principal paydowns of borrowings and mortgage notes payable
(360,112
)
 
(146,451
)
Repurchases of common stock
(851
)
 
(486
)
Financing activities from CLOs
(260
)
 
(19,853
)
Net cash provided by financing activities - continuing operations
46,191

 
88,226

Net cash (used in) financing activities - discontinued operations

 
(2,500
)
Net cash provided by financing activities
46,191

 
85,726

Net increase (decrease) in cash and cash equivalents
(26,175
)
 
20,145

Cash and cash equivalents – beginning of period - continuing operations
69,400

 
52,987

Cash and cash equivalents – beginning of period - discontinued operations

 
28,361

Cash and cash equivalents – end of period
43,225

 
101,493

Less: Reclassification of cash to assets held for sale

 
55,073

Cash and cash equivalents of continuing operations – end of period
$
43,225

 
$
46,420

 
 
 
 
Supplemental Schedule of Non-Cash Investing and Financing Activities:
 
 
 
Acquiring real estate properties through, or in lieu of, foreclosure of the related loan
$
1,676

 
$



















See accompanying notes to consolidated financial statements.

F-7



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2016
(in thousands, except share data)


(1) Organization

Tiptree Financial Inc. (Tiptree and, together with its consolidated subsidiaries, collectively, the Company, or We) is a Maryland Corporation that was incorporated on March 19, 2007. Until July 1, 2013, Tiptree operated under the name Care Investment Trust Inc. (which, for the period prior to July 1, 2013, we refer to as Care Inc.). Tiptree is a diversified holding company which conducts its operations through Tiptree Operating Company, LLC (the Operating Company). Tiptree’s primary focus is on five reporting segments: insurance and insurance services, specialty finance, real estate, asset management, and corporate and other. Tiptree’s Class A Common Stock is traded on the NASDAQ Capital Market under the symbol “TIPT”.

As of December 31, 2015, Tiptree owned, directly or indirectly, approximately 81% of the assets of Operating Company with the remaining 19% held by non-controlling shareholders through their interests in Tiptree Financial Partners, L.P. (TFP). Effective January 1, 2016, Tiptree, TFP and Operating Company created a consolidated group among themselves and various Operating Company subsidiaries for U.S. federal income tax purposes, with Tiptree being the parent company. In connection with the creation of the consolidated group, TFP and the Operating Company elected to be treated as corporations for U.S. federal income tax purposes, and Tiptree contributed its 28% interest in Operating Company to TFP in exchange for 4,281,624 additional common units of TFP. As a result of these steps, as of January 1, 2016, Tiptree directly owns approximately 81% of TFP and TFP directly owns 100% of Operating Company. There was no change to the relative economic position of the parties to the transactions as a result of this reorganization. See Note 23—Income Taxes.
The limited partners of TFP (other than Tiptree itself) have the ability to exchange TFP partnership units for Tiptree Class A common stock at a rate of 2.798 shares of Class A common stock per partnership unit. The percentage of TFP (and therefore Operating Company) owned by Tiptree may increase in the future to the extent TFP’s limited partners choose to exchange their limited partnership units of TFP for Class A common stock of Tiptree.
(2) Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements of Tiptree have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) and include the accounts of the Company and its controlled subsidiaries. The consolidated financial statements are presented in U.S. dollars, the main operating currency of the Company. The unaudited consolidated financial statements presented herein should be read in conjunction with the annual audited financial statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2015. In the opinion of management, the accompanying unaudited interim financial information reflects all adjustments, including normal recurring adjustments necessary to present fairly the Company’s financial position, results of operations, comprehensive income and cash flows for each of the interim periods presented. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the full year ending on December 31, 2016.

Tiptree consolidates those entities in which it has an investment of 50% or more of voting rights or has control over significant operating, financial and investing decisions of the entity as well as those entities deemed to be variable interest entities (VIEs) in which Tiptree is determined to be the primary beneficiary. VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity risk for the entity to finance its activities without additional subordinated financial support from other parties.

A VIE is required to be consolidated only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Generally, Tiptree’s consolidated VIEs are entities which Tiptree is considered the primary beneficiary through its controlling financial interests.

Non-controlling interests on the Consolidated Statements of Income represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than Tiptree. Accounts and transactions between consolidated entities have been eliminated.

The Company’s Consolidated Statements of Cash Flows for the three months ended March 31, 2015 have been revised primarily to reflect funds used to originate loans as an investing activity rather than an operating activity. These corrections resulted in an increase in cash provided by operating activities of approximately $9,000, an increase in cash used in investing activities of

F-8



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2016
(in thousands, except share data)

approximately $5,000 and a decrease in cash provided by financing activities of approximately $4,000. In addition, certain prior period amounts have been reclassified to conform to the current year presentation.

See “Item 4. Controls and Procedures” for actions the Company is taking to remediate certain material weaknesses as of March 31, 2016, and to enhance its control infrastructure as a result.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. Management makes estimates and assumptions that include but are not limited to the determination of the following significant items:

Fair value of financial assets and liabilities, including, but not limited to, securities, loans and derivatives
Value of acquired assets and liabilities
Carrying value of goodwill and other intangibles, including estimated amortization period and useful lives
Reserves for unpaid losses and loss adjustment expenses, estimated future claims and losses, potential litigation and other claims
Valuation of contingent share issuances for compensation and purchase consideration, including estimates of number of shares and vesting schedules
Revenue recognition including, but not limited to, the timing and amount of insurance premiums, service, administration fees, and loan origination fees and
Other matters that affect the reported amounts and disclosure of contingencies in the consolidated financial statements

Although these and other estimates and assumptions are based on the best available estimates, actual results could differ materially from management’s estimates.

Business Combination Accounting

The Company accounts for business combinations by applying the acquisition method of accounting. The acquisition method requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at fair value as of the closing date of the acquisition. The net assets acquired may consist of tangible and intangible assets and the excess of purchase price over the fair value of identifiable net assets acquired, or goodwill. The determination of estimated useful lives and the allocation of the purchase price to the intangible assets requires significant judgment and affects the amount of future amortization and possible impairment charges. Contingent consideration, if any, is measured at fair value on the date of acquisition. The fair value of any contingent consideration liability is remeasured at each reporting date with any change recorded in other income in the Consolidated Statements of Income. Acquisition and transaction costs are related primarily to completed and potential business combinations and include advisory, legal, accounting, valuation and other professional or consulting fees which are expensed as incurred.

In certain instances, the Company may acquire less than 100% ownership of an entity, resulting in the recording of a non-controlling interest. The non-controlling interest is initially established at a preliminary estimate of fair value, which may be adjusted during the measurement period based upon the results of a valuation study applicable to the business combination.

Fair Value Measurement

ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, describes the framework for measuring fair value, and addresses fair value measurement disclosures. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

ASC Topic 820 establishes a three‑level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels, from highest to lowest, are defined as follows:

Level 1 – Unadjusted, quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

F-9



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2016
(in thousands, except share data)


Level 2 – Significant inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability. The types of financial assets and liabilities carried at level 2 are valued based on one or more of the following:

a) Quoted prices for similar assets or liabilities in active markets;
b) Quoted prices for identical or similar assets or liabilities in nonactive markets;
c) Pricing models whose inputs are observable for substantially the full term of the asset or liability;
d) Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

Level 3 – Significant inputs that are unobservable inputs for the asset or liability, including the Company’s own data and assumptions that are used in pricing the asset or liability.

Fair Value Option

The Company has elected the fair value option election that allows entities to make an irrevocable election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in net realized and unrealized gains (losses) within the Consolidated Statements of Income. The decision to elect the fair value option is determined on an instrument-by-instrument basis and must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to this guidance are required to be reported separately in our Consolidated Balance Sheets from those instruments using another accounting method.

Recent Accounting Standards

Recently Adopted Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. These amendments change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. In addition, ASU 2014-08 requires expanded disclosures about discontinued operations that will provide financial statement users with more information. ASU 2014-08 is effective for the first quarter of 2015 for the Company. The effects of applying the revised guidance will vary based upon the nature and size of future disposal transactions. It is expected that fewer disposal transactions will meet the new criteria to be reported as discontinued operations. The adoption of ASU 2014-08 did not have an impact on the Company's consolidated financial position, results of operations and cash flows.

In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period shall be treated as a performance condition. The adoption of this standard did not have an impact on its Consolidated Balance Sheets, results of operations or cash flows.

In January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The pronouncement eliminates the concept of extraordinary items from GAAP. However, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. ASU 2015-01 will be effective for the annual and interim periods beginning after December 15, 2015 with early adoption permitted. The adoption of this standard did not have an impact on the Company’s Consolidated Balance Sheets, results of operations or cash flows.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability and consistent with debt discounts. ASU 2015-03 requires retrospective adoption and will be effective

F-10



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2016
(in thousands, except share data)

for the Company on January 1, 2016 and early adoption is permitted. Accordingly “Debt, net” is reported net of deferred financing costs as of March 31, 2016 and December 31, 2015, respectively in the Consolidated Balance Sheets. See Note 17—Debt, net.

In April 2015, the FASB issued ASU 2015-05, Intangibles -Goodwill and Other -Internal-Use Software (Subtopic 350-40) which will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance as to whether an arrangement includes the sale or license of software.  The adoption of this standard did not have an impact on the Company’s Consolidated Balance Sheets, results of operations and cash flows.

In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which eliminates the requirement for entities to categorize within the fair value hierarchy investments for which fair values are measured at net asset value (NAV) per share (FASB ASC Subtopic 820-10). ASU 2015-07 also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV per share practical expedient, instead limiting disclosures to investments for which the entity has elected the expedient. ASU 2015-07 is effective for the Company on January 1, 2016 and early adoption is permitted and retrospective adoption is required. The adoption of this standard did not have an impact on the Company’s Consolidated Balance Sheets, results of operations or cash flows.

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements, which covers a wide range of Topics in the Codification. The amendments in ASU 2015-10 represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost on most entities. Amendments with transition guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. All other amendments are effective upon the ASU’s issuance (June 12, 2015). The adoption of this standard did not have a material impact on the Company’s Consolidated Balance Sheets, results of operations or cash flows.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in this standard affects any entity that either enters into contracts with customers to transfer goods and services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This standard was originally effective for the Company on January 1, 2017.

On July 9, 2015, the FASB decided to delay the effective date of ASU 2014-09 by one year. Reporting entities may choose to adopt the standard as of the original effective date. The deferral results in ASU 2014-09 being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently reviewing ASU 2014-09 and is assessing the potential effects on its consolidated financial position, results of operations and cash flows.

In May 2015, the FASB issued ASU 2015-09, Financial Services—Insurance (Topic 944): Disclosures about Short-Duration Contracts, which expands the disclosure requirements for insurance companies that issue short-duration contracts (typically one year or less) to provide users with additional disclosures about the liability for unpaid claims and claim adjustment expenses and to increase the transparency of the significant estimates management makes in measuring those liabilities. In addition, the disclosures will serve to increase insight into an insurance entity’s ability to underwrite and anticipate costs associated with claims as well as provide users of the financial statements a better understanding of the amount and uncertainty of cash flows arising from insurance liabilities, the nature and extent of risks on short-duration contracts and the timing of cash flows arising from insurance liabilities. ASU 2015-09 will be effective for the Company for the annual period beginning after December 15, 2015, and for interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the effect upon its financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01), which makes targeted improvements to the recognition, measurement, presentation and disclosure of certain financial instruments. ASU 2016-01 focuses primarily on the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for certain financial instruments. Among its provisions for public business entities, ASU 2016-01 eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments

F-11



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2016
(in thousands, except share data)

measured at amortized cost, requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires the separate presentation in other comprehensive income of the change in fair value of a liability due to instrument-specific credit risk for a liability for which the reporting entity has elected the fair value option, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) and clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. ASU 2016-1 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted for a limited number of provisions. The Company is currently evaluating the effect on its financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840). The standard is effective on January 1, 2019, with early adoption permitted. The Company is in the process of evaluating the impact the adoption of ASU 2016-02 will have on our financial position or results of operations.

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships which clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815, does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating the effect upon its financial statements.

In March 2016, the FASB issued ASU 2016-07, Investments -Equity Method and Joint Ventures (Topic 323) which eliminates the requirement in Topic 323 that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016 and should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Early adoption is permitted. The Company is currently evaluating the effect upon its financial statements.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) which clarify the implementation guidance on principal versus net considerations. The effective date and transition requirements for this standard are the same as the effective date and transition requirements of ASU 2014-09. The Company is currently evaluating the effect upon its financial statements.

In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting which simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition, the amendments in this Update eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the effect upon its financial statements.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing which clarifies guidance related to identifying performance obligations and licensing implementation

F-12



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2016
(in thousands, except share data)

guidance contained in the new revenue recognition standard. The Update includes targeted improvements based on input the Board received from the Transition Resource Group for Revenue Recognition and other stakeholders. The Update seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and complexity of applying certain aspects of the guidance both at implementation and on an ongoing basis. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). The Company is currently evaluating the effect upon its financial statements.

(3) Acquisitions

Acquisitions during the three months ended March 31, 2016
Real Estate
Managed Properties
During the three months ended March 31, 2016, Care and affiliates of Care’s partners entered into agreements to acquire and operate two senior housing communities for total consideration of $55,074 (which includes deposits of $125 paid in the fourth quarter of 2015) of which $39,217 was financed through mortgage debt issued in connection with the acquisitions, $3,885 was financed by contributions from the affiliates of Care’s partners, and the remainder was paid with cash on hand. Affiliates of Care’s partners provide management services to the communities under management contracts.

The primary reason for the Company’s acquisition of the senior housing communities is to expand its real estate operations. For the period from acquisition until March 31, 2016, revenue and the net loss in the aggregate for the two managed properties acquired were $1,580 and $1,065, respectively.

The following table summarizes the consideration paid and the amounts of estimated fair value of the assets acquired and the liabilities assumed for the acquisitions completed during the three months ended March 31, 2016:

 
2016 Acquisitions
 
Real Estate
Consideration:
 
Cash
$
52,854

Equity
2,220

Fair value of total consideration
$
55,074

 
 
Acquisition costs
$
383

 
 
Recognized amounts of identifiable assets acquired and liabilities assumed:
 
Assets:
 
Real estate, net
$
51,285

Intangible assets, net
3,940

Other assets
117

 
 
Liabilities:
 
Deferred revenue
(261
)
Other liabilities and accrued expenses
(7
)
Total identifiable net assets assumed
$
55,074


The following table shows the values recorded by the Company, as of the acquisition date, for finite-lived intangible assets and their estimated amortization period:

F-13



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2016
(in thousands, except share data)

Intangible Assets
Weighted Average Amortization Period (in Years)
 
Real Estate
In-place Lease
1.3
 
$
3,940


The Company's acquisition accounting for transactions completed through March 31, 2016 is still preliminary pending the completion of various analyses and the finalization of estimates used in the determination of fair values. During the measurement period, additional assets or liabilities may be recognized if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date. The preliminary measurement of net assets acquired may be adjusted after obtaining additional information regarding, among other things, asset valuations (including market and other information with which to determine fair values), liabilities assumed, the analysis of assumed contracts, and revisions of previous estimates. These adjustments may be significant and will be accounted for within the allowable 1 year measurement period.

Supplemental pro forma results of operations have not been presented for the above 2016 business acquisitions as they are not material in relation to the Company’s reported results.

Acquisitions during the three months ended March 31, 2015

Real Estate

Managed Properties

During the three months ended March 31, 2015, the Company and one of Care’s partners entered into agreements to acquire and operate five senior housing communities for total consideration of $29,251 (which includes deposits of $587 paid in the fourth quarter of 2014) of which $19,943 was financed through mortgage debt issued in connection with the acquisitions, $1,861 was financed by a contribution of cash from the partner, and the remainder was paid with cash on hand. Affiliates of the partner provide management services to the communities under a management contract.

Triple Net Lease Properties

During the three months ended March 31, 2015, the Company acquired the assets of six seniors housing communities for total consideration of $54,536 (which includes deposits of $1,490 paid in the fourth quarter of 2014) of which $39,500 was financed through mortgage debt issued in connection with the acquisitions, and the remainder was paid with cash on hand.

The primary reason for the Company’s acquisition of the senior housing communities was to expand its real estate operations. For the period from acquisition until March 31, 2015, revenue and the net loss in aggregate for the properties acquired were $1,553 and $1,675 respectively.


F-14



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2016
(in thousands, except share data)

The following table summarizes the consideration paid and the amounts of estimated fair value of the assets acquired and the liabilities assumed for the acquisitions completed during the three months ended March 31, 2015:

 
2015 Acquisitions
 
Real Estate
Fair value of total consideration
$
83,787

 
 
Acquisition costs
$
1,567

 
 
Recognized amounts of identifiable assets acquired and liabilities assumed:
 
Assets:
 
Real estate, net
$
76,003

Intangible assets, net
8,800

Other assets
92

 
 
Liabilities:
 
Deferred revenue
(589
)
Other liabilities and accrued expenses
(519
)
Total identifiable net assets assumed
$
83,787


Supplemental pro forma results of operations have not been presented for the above 2015 business acquisitions as they are not material in relation to the Company’s reported results.

The following table shows the values recorded by the Company, as of the acquisition date, for finite-lived intangible assets and their estimated amortization period:
Intangible Assets
Weighted Average Amortization Period (in Years)
 
Real Estate
In-place Lease
8.7
 
$
8,800


Insurance and Insurance Services - Purchase of Non-controlling Interests

On January 1, 2015, Fortegra Financial Corporation (Fortegra) exercised an option to purchase the remaining 37.6% ownership interest in ProtectCELL it did not own and now owns 100% of ProtectCELL. Upon exercising the option, Fortegra made an initial payment of $3,000. Fortegra has accrued an additional $4,100.

(4) Dispositions, Assets Held for Sale and Discontinued Operations

The Company classified its Philadelphia Financial Group (PFG) subsidiary as held for sale as of December 31, 2014. At the time of such classification, the pending sale of PFG also met the requirements to be classified as a discontinued operation. The sale of PFG was completed on June 30, 2015.

As a result, the Company has reclassified the income and expenses attributable to PFG to income from discontinued operations, net for the three months ended March 31, 2015.
 
 
 
 
The following table represents detail of revenues and expenses of discontinued operations in the Consolidated Statements of Income for the three months ended March 31, 2015:

F-15



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2016
(in thousands, except share data)

 
Three months ended March 31,
 
2015
 
 
Revenues:
 
Net realized gain
$
20

Interest income
1,174

Separate account fees
6,226

Service and administrative fees
12,659

Other income
2

Total revenues
20,081

Expenses:
 
Interest expense
2,654

Payroll expense
4,612

Professional fees
319

Change in future policy benefits
1,102

Mortality expenses
2,805

Commission expense
808

Depreciation and amortization
457

Other expenses
2,237

Total expenses
14,994

Less: provision for income taxes
2,742

Income from discontinued operations, net
$
2,345

The following table presents the cash flows from discontinued operations for the periods indicated:
 
 
 
Three Months Ended March 31,
 
2015
Net cash provided by (used in):
 
Operating activities
$
30,950

Investing activities
(1,738
)
Financing activities
(2,500
)
Net cash flows provided by discontinued operations
$
26,712


(5) Operating Segment Data

The Company has five reportable operating segments, which are: (i) insurance and insurance services, (ii) specialty finance, (iii) real estate, (iv) asset management and (v) corporate and other. The Company’s operating segments are organized in a manner that reflects how management views these strategic business units.

Each reportable segment’s income (loss) is reported before income taxes, discontinued operations and non-controlling interests.

Descriptions of each of the reportable segments are as follows:

Insurance and Insurance Services operations are conducted through Fortegra, a specialized insurance company that offers a wide array of consumer related protection products, including credit-related insurance, mobile device protection, and warranty and service contracts. Fortegra also provides third party administration services to insurance companies, retailers, automobile dealers, insurance brokers and agents and financial services companies.
Specialty Finance is comprised of Siena Capital Finance LLC (Siena), which commenced operations in April 2013, and the Company’s mortgage businesses which consists of Luxury, which was acquired in January 2014 and Reliance which was acquired in July 2015. The Company’s mortgage origination business originated loans primarily for sale to institutional investors, including

F-16



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2016
(in thousands, except share data)

GSEs, FHA/VA, prime jumbo and super jumbo mortgages, through both retail and wholesale channels and through a call center model, primarily focused on re-financings. Segment results incorporate the revenues and expenses of these subsidiaries since they commenced operations or were acquired.
Siena’s business consists of structuring asset-based loan facilities across diversified industries which include manufacturing, distribution, wholesale, and service companies. Our mortgage origination business includes Luxury, a residential mortgage lender that originates loans, including prime jumbo and super jumbo mortgages for sale to institutional investors and Reliance, a residential mortgage lender that originates loans, primarily GSE and FHA/VA mortgages, focusing on refinancing with a call center model.
Real Estate operations include Care LLC (Care), a wholly-owned subsidiary of Tiptree which has a geographically diverse portfolio of seniors housing properties including senior apartments, assisted living, independent living, memory care and skilled nursing facilities in the U.S.
Asset Management operations is primarily comprised of Telos Asset Management’s (Telos) management of CLOs. Telos is a subsidiary of Tiptree Asset Management Company, LLC (TAMCO), an SEC-registered investment advisor owned by the Company.
Corporate and other operations include the Company’s principal investments and corporate expenses.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The tables below present the components of revenue, expense pre-tax income or loss, and segment assets for each of the operating segments for the following periods:
 
Three months ended March 31, 2016
 
Insurance and insurance services
 
Specialty finance
 
Real estate
 
Asset management
 
Corporate and other
 
Total
Total revenue
89,312

 
16,566

 
13,890

 
2,006

 
10,032

 
131,806

Total expense
80,315

 
17,549

 
17,749

 
1,346

 
10,977

 
127,936

Net income attributable to consolidated CLOs

 

 

 
1,000

 
105

 
1,105

Pre-tax income (loss)
$
8,997

 
$
(983
)
 
$
(3,859
)
 
$
1,660

 
$
(840
)
 
$
4,975

Less: provision for income taxes
 
 
 
 
 
 
 
 
 
 
(2,439
)
Discontinued operations, net
 
 
 
 
 
 
 
 
 
 

Net income before non-controlling interests
 
 
 
 
 
 
 
 
 
 
$
7,414

Less: net income attributable to non-controlling interests from continuing operations and discontinued operations
 
 
 
 
 
 
 
 
 
 
1,859

Net income available to common stockholders
 
 
 
 
 
 
 
 
 
 
$
5,555

 
 
 
 
 
 
 
 
 
 
 
 
Segment Assets as of March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Segment assets
$
981,412

 
$
186,260

 
$
278,634

 
$
1,966

 
$
429,219

 
$
1,877,491

Assets of consolidated CLOs
 
 
 
 
 
 
 
 
 
 
722,418

Total assets
 
 
 
 
 
 
 
 
 
 
$
2,599,909

 
Three months ended March 31, 2015
 
Insurance and insurance services
 
Specialty finance
 
Real estate
 
Asset management
 
Corporate and other
 
Total
Total revenue
72,379

 
6,255

 
9,424

 
1,047

 
(42
)
 
89,063

Total expense
68,353

 
5,820

 
13,605

 
1,010

(1 
) 
5,824

(1 
) 
94,612

Net income (loss) attributable to consolidated CLOs

 

 

 
1,837

 
(2,148
)
 
(311
)
Pre-tax income (loss)
$
4,026

 
$
435

 
$
(4,181
)
 
$
1,874

 
$
(8,014
)
 
$
(5,860
)
Less: (benefit) for income taxes
 
 
 
 
 
 
 
 
 
 
(1,496
)
Discontinued operations
 
 
 
 
 
 
 
 
 
 
2,345

Net (loss) before non-controlling interests
 
 
 
 
 
 
 
 
 
 
$
(2,019
)

F-17



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2016
(in thousands, except share data)

 
Three months ended March 31, 2015
 
Insurance and insurance services
 
Specialty finance
 
Real estate
 
Asset management
 
Corporate and other
 
Total
Less: net (loss) attributable to non-controlling interests from continuing operations and discontinued operations
 
 
 
 
 
 
 
 
 
 
(1,040
)
Net (loss) available to common stockholders
 
 
 
 
 
 
 
 
 
 
$
(979
)
 
 
 
 
 
 
 
 
 
 
 
 
Segment Assets as of December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Segment assets
$
929,054

 
$
208,201

 
$
230,546

 
$
1,820

 
$
396,537

 
$
1,766,158

Assets of consolidated CLOs
 
 
 
 
 
 
 
 
 
 
728,812

Total assets
 
 
 
 
 
 
 
 
 
 
$
2,494,970


(1) Bonus of $300 was reclassified from Corporate and other to Asset management to conform to the current period presentation.

(6) Securities, Available for Sale

All of the Company’s investments in available for sale securities as of March 31, 2016 and December 31, 2015 are held by Fortegra. The following tables present the Company's investments in available for sale securities:
 
As of March 31, 2016
 
Cost or Amortized Cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
U.S. Treasury securities and obligations of U.S. government authorities and agencies
$
51,082

 
$
779

 
$
(15
)
 
$
51,846

Obligations of state and political subdivisions
54,271

 
892

 
(18
)
 
55,145

Corporate securities
66,087

 
679

 
(214
)
 
66,552

Asset backed securities
1,490

 
41

 

 
1,531

Certificates of deposit
892

 

 

 
892

Equity securities
6,081

 
183

 
(64
)
 
6,200

Obligations of foreign governments
2,918

 
14

 
(6
)
 
2,926

Total
$
182,821

 
$
2,588

 
$
(317
)
 
$
185,092

 
 
 
 
 
 
 
 
 
As of December 31, 2015
 
Cost or Amortized Cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
U.S. Treasury securities and obligations of U.S. government authorities and agencies
$
53,274

 
$
83

 
$
(221
)
 
$
53,136

Obligations of state and political subdivisions
51,942

 
466

 
(73
)
 
52,335

Corporate securities
68,400

 
89

 
(651
)
 
67,838

Asset backed securities
1,525

 
4

 

 
1,529

Certificates of deposit
893

 

 

 
893

Equity securities
6,081

 
106

 
(79
)
 
6,108

Obligations of foreign governments
2,931

 

 
(67
)
 
2,864

Total
$
185,046

 
$
748

 
$
(1,091
)
 
$
184,703



F-18



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2016
(in thousands, except share data)

The following tables summarize the gross unrealized losses on available for sale securities in an unrealized loss position:
 
As of March 31, 2016
 
Less Than or Equal to One Year
 
More Than One Year
 
Fair value
 
Gross
unrealized losses
 
# of Securities
 
Fair value
 
Gross unrealized losses
 
# of Securities
U.S. Treasury securities and obligations of U.S. government authorities and agencies
$
10,772

 
$
(14
)
 
57

 
$
19

 
$
(1
)
 
2

Obligations of state and political subdivisions
8,198

 
(14
)
 
25

 
898

 
(4
)
 
3

Corporate securities
19,006

 
(198
)
 
106

 
1,179

 
(16
)
 
8

Equity securities
1,078

 
(11
)
 
4

 
936

 
(53
)
 
4

Obligations of foreign governments
568

 
(6
)
 
8

 

 

 

Total
$
39,622

 
$
(243
)
 
200

 
$
3,032

 
$
(74
)
 
17

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2015
 
Less Than or Equal to One Year
 
More Than One Year
 
Fair value
 
Gross
unrealized losses
 
# of Securities
 
Fair value
 
Gross unrealized losses
 
# of Securities
U.S. Treasury securities and obligations of U.S. government authorities and agencies
$
35,588

 
$
(221
)
 
146

 
$

 
$

 

Obligations of state and political subdivisions
18,500

 
(59
)
 
45

 
400

 
(14
)
 
2

Corporate securities
56,373

 
(634
)
 
302

 
267

 
(17
)
 
6

Equity securities
1,998

 
(79
)
 
8

 

 

 

Obligations of foreign governments
2,863

 
(67
)
 
18

 

 

 

Total
$
115,322

 
$
(1,060
)
 
519

 
$
667

 
$
(31
)
 
8

The Company does not intend to sell the investments that were in an unrealized loss position at March 31, 2016, and management believes that it is more likely than not that the Company will be able to hold these securities until full recovery of their amortized cost basis for fixed maturity securities or cost for equity securities. The unrealized losses were attributable to changes in interest rates and not credit-related issues. As of March 31, 2016, based on the Company's review, none of the fixed maturity or equity securities were deemed to be other-than-temporarily impaired based on the Company's analysis of the securities and its intent to hold the securities until recovery. There have been no other-than-temporary impairments recorded by the Company for the three months ended March 31, 2016.

The amortized cost and fair values of investments in debt securities, by contractual maturity date, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Excluded from this table are equity securities since they have no contractual maturity.
 
As of
 
March 31, 2016
 
December 31, 2015
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due in one year or less
$
22,888

 
$
22,874

 
$
20,347

 
$
20,319

Due after one year through five years
75,012

 
75,348

 
76,967

 
76,578

Due after five years through ten years
57,391

 
58,892

 
56,133

 
56,240

Due after ten years
19,959

 
20,247

 
23,993

 
23,929

Asset backed securities
1,490

 
1,531

 
1,525

 
1,529

Total
$
176,740

 
$
178,892

 
$
178,965

 
$
178,595

Purchases of available for sale securities were $7,898 and $13,466 for the three months ended March 31, 2016 and 2015, respectively. Proceeds from maturities, calls and prepayments of available for sale securities were $9,535 and $8,170 with associated gains of $57 and $4, for the three months ended March 31, 2016 and 2015, respectively. Proceeds from the sale of

F-19



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2016
(in thousands, except share data)

available for sale securities for the three months ended March 31, 2016 and 2015, were $0 and $722 with associated gains of $0 and losses of $9, respectively.

(7) Investment in Loans

The following table presents the Company’s loans, measured at fair value and amortized cost:
 
As of
 
March 31, 2016
 
December 31, 2015
Loans, at fair value
 
 
 
Corporate loans
$
275,604

 
$
233,861

Non-performing residential loans
48,899

 
38,289

Other loans receivable
1,409

 
1,409

Total loans, at fair value
$
325,912

 
$
273,559

 
 
 
 
Loans owned at amortized cost, net
 
 
 
Asset backed loans and other loans
59,400

 
52,994

Less: Allowance for loan losses
503

 
463

Total loans owned, held at amortized cost, net
$
58,897

 
$
52,531

 
 
 
 
Net deferred loan origination fees included in asset backed loans
$
4,011

 
$
3,520


Loans, at fair value

Corporate Loans

Corporate loans primarily include syndicated leveraged loans held by the Company as principal investments, which consist of $275,604 in loans primarily held by the Company’s warehouse credit facility in anticipation of launching a new CLO, Telos CLO 2016-7, Ltd. (Telos 7), and the Telos Credit Opportunities fund at March 31, 2016.  As of March 31, 2016, the unpaid principal balance on these loans was $285,805.

The difference between fair value of the Corporate loans and the unpaid principal balance was $10,201.

Non-performing Residential Loans

As of March 31, 2016, the Company’s investments included $48,899 of loans collateralized by real estate in the process of foreclosure of which the unpaid principal balance was $79,142.  The difference between the fair value of the NPLs and the unpaid principal balance was $30,243.

Included in other assets are $3,677 of foreclosed residential real estate property.

Loans Owned at amortized cost, net

Asset backed loans
Siena structures asset-based loan facilities in the $1,000 to $25,000 range across diversified industries, which include manufacturing distribution, wholesale, and service companies. As of March 31, 2016 and December 31, 2015, the Company carried $58,197 and $51,831 in loans receivable on its Consolidated Balance Sheets. Collateral for asset-backed loan receivables, as of March 31, 2016 and December 31, 2015 consisted of inventory, equipment and accounts receivable. Management reviews collateral for these loans on at least a monthly basis or more frequently if a draw is requested and has determined that no impairment existed as of March 31, 2016. As of March 31, 2016, there were no delinquencies in the Siena portfolio and all loans were classified as performing.

F-20



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2016
(in thousands, except share data)

(8) Mortgage Loans Held for Sale

The following table summarized the total mortgage loans held for sale, at fair value:
 
As of
 
March 31, 2016
 
December 31, 2015
Mortgage loans held for sale, unpaid principal
$
90,248

 
$
117,039

Change in fair value
3,284

 
3,797

Total mortgage loans held for sale, at fair value
$
93,532

 
$
120,836


The unpaid principal balance and fair value of held for sales that are 90 days or more past due were $142 and $66, respectively, as of March 31, 2016. The unpaid principal balance and fair value of held for sales that are 90 days or more past due were $142 and $82, respectively, as of December 31, 2015. The Company discontinues accruing interest on all loans that are 90 days or more past due.

(9) Fair Value of Financial Instruments

The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used to measure a financial instrument’s fair value. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability, and are affected by the type of product, whether the product is traded on an active exchange or in the secondary market, as well as current market conditions. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Fair value is estimated by applying the hierarchy discussed in Note 2, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement.
Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized within Level 3 of the fair value hierarchy.

The Company’s fair value measurement is based on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable financial instruments. Sources of inputs to the market approach include third-party pricing services, independent broker quotations and pricing matrices. Management analyzes the third party valuation methodologies and its related inputs to perform assessments to determine the appropriate level within the fair value hierarchy and to assess reliability of values. Further, management has a process in place to review all changes in fair value that occurred during each measurement period. Any discrepancies or unusual observations are followed through to resolution through the source of the pricing as well as utilizing comparisons, if applicable, to alternate pricing sources.

The Company utilizes observable and unobservable inputs within its valuation methodologies. Observable inputs may include: benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data. In addition, specific issuer information and other market data is used. Broker quotes are obtained from sources recognized to be market participants. Unobservable inputs may include: expected cash flow streams, default rates, supply and demand considerations and market volatility.

Available for Sale Securities

Available for sale securities are generally classified within either Level 1 or Level 2 of the fair value hierarchy and are based on prices provided by an independent pricing service and a third party investment manager who provide a single price or quote per security.

The following details the methods and assumptions used to estimate the fair value of each class of available for sale securities and the applicable level each security falls within the fair value hierarchy:

U.S Treasury Securities, Obligations of U.S. Government Authorities and Agencies, Municipal Securities, Corporate Securities, and Obligations of Foreign Governments: Fair values were obtained from an independent pricing service and

F-21



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2016
(in thousands, except share data)

a third party investment manager. The prices provided by the independent pricing service are based on quoted market prices, when available, non-binding broker quotes, or matrix pricing and fall under Level 2 of the fair value hierarchy.

Certificates of Deposit: The estimated fair value of certificates of deposit approximate carrying value and fall under Level 1 of the fair value hierarchy.

Equity Securities: The fair values of publicly traded common and preferred stocks were obtained from market value quotations provided by an independent pricing service and fall under Level 1 of the fair value hierarchy. The fair values of non-publicly traded common and preferred stocks were based on prices obtained from an independent pricing service using unobservable inputs and fall under Level 3 of the fair value hierarchy.

Derivative Assets and Liabilities: Derivatives are comprised of credit default swaps (CDS), index credit default swaps (CDX), interest rate lock commitments (IRLC), to be announced mortgage backed securities (TBA) and interest rate swaps (IRS). The fair value of these instruments is based upon valuation pricing models, which represent the amount the Company would expect to receive or pay at the balance sheet date to exit the position. In general, the fair value of CDSs and CDXs are based on dealer quotes. Because significant inputs, other than unadjusted quoted prices in active markets are used to determine the dealer quotes, such as price volatility, the Company classifies them as Level 2 in the fair value hierarchy. The fair value of IRS is based upon either valuation pricing models, which represent the amount the Company would expect to pay at the balance sheet date if the contracts were exited, or by obtaining broker or counterparty quotes. Because there are observable inputs used to arrive at these prices, the Company has classified IRS within Level 2 of the fair value hierarchy. Our mortgage origination subsidiaries issue IRLCs to its customers, which are carried at estimated fair value on the Company’s Consolidated Balance Sheet. The estimated fair values of these commitments are generally calculated by reference to the value of the underlying loan associated with the IRLC net of an expected fall out assumption. The fair values of these commitments generally result in a Level 3 classification. Our mortgage origination subsidiaries manage their exposure by entering into best efforts delivery commitments with loan investors referred to as “best efforts lock”. For loans not locked with investors on a best efforts basis, the Company enters into hedge instruments, to protect against movements in interest rates. The fair values of these hedge instruments generally result in a Level 2 classification.

The Company uses certain of its IRS as part of its risk management strategy to manage interest rate risk and cash flow risk that may arise in connection with the variable interest rate provision of the Company's preferred trust securities. These derivatives are classified as cash flow hedges.

Trading Assets and Liabilities: Trading assets and liabilities consist primarily of privately held equity securities, exchange-traded equity securities, CLOs, collateralized debt obligations (CDOs), derivative assets and liabilities, tax exempt securities, and U.S. Treasury short positions. The fair value of privately held equity securities are based on quotes obtained from dealers or internally developed valuation models. Because significant inputs used to determine the dealer quotes or model values are not observable, such as projected future earnings and price volatility, the Company has classified them within Level 3 of the fair value hierarchy. The Company’s U.S. Treasury short position is priced through dealer indicative quotes and as such is classified as Level 2.

Positions in securitized products such as CLOs and CDOs are based on quotes obtained from dealers and valuation models. When these quotes are based directly or indirectly on observable inputs such as quoted prices for similar assets exchanged in an active or inactive market, the Company has classified them within Level 2 of the fair value hierarchy. If these quotes are based on valuation models using unobservable inputs such as expected future cash flows, default rates, supply and demand considerations, and market volatility, the Company has classified them within Level 3 of the fair value hierarchy.

The fair value of tax exempt securities is determined by obtaining quotes from independent pricing services. In most cases, quotes are obtained from two pricing services and the average of both quotes is used. The independent pricing services determine their quotes using observable inputs such as current interest rates, specific issuer information and other market data for such securities. Therefore, the estimate of fair value is subject to a high degree of variability based upon market conditions, the availability of issuer information and the assumptions made. The valuation inputs used to arrive at fair value for such debt obligations are generally classified within Level 2 or Level 3 of the fair value hierarchy.


F-22



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2016
(in thousands, except share data)

The Company determines the purchase price for NPLs at the time of acquisition and for each subsequent valuation by using a discounted cash flow valuation model and considering alternate loan resolution probabilities, including modification, liquidation, or conversion to REO. Observable inputs to the model include loan amounts, payment history, and property types. Our NPLs are on nonaccrual status at the time of purchase as it is probable that principal or interest is not fully collectible.

NPLs converted to REOs were measured at fair value on a non-recurring basis during the three months ended March 31, 2016 (the Company did not have investments in REO status in prior year period). The carrying value of REOs at March 31, 2016 was $3,677. Upon conversion to REO the fair value is estimated using broker price opinion (BPO). BPOs are subject to judgments of a particular broker formed by visiting a property, assessing general home values in an area, reviewing comparable listings, and reviewing comparable completed sales. These judgments may vary among brokers and may fluctuate over time based on housing market activities and the influx of additional comparable listings and sales.

The following tables present the Company’s fair value hierarchies for financial assets and liabilities, including the balances associated with the consolidated CLOs, measured on a recurring basis:

 
As of March 31, 2016
 
Quoted prices in
 active markets
Level 1
 
 Other significant
 observable inputs
 Level 2
 
 Significant unobservable inputs
Level 3
 
Fair value
Assets:
 
 
 
 
 
 
 
Trading assets:
 
 
 
 
 
 
 
Equity securities
$
21,261

 
$

 
$
12,911

 
$
34,172

CLO

 

 
1,490

 
1,490

Total trading securities
21,261

 

 
14,401

 
35,662

 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
Interest rate lock commitments

 

 
3,488

 
3,488

TBA mortgage backed securities

 
194

 

 
194

Foreign currency forward contracts

 
4

 

 
4

Credit derivatives

 
12,121

 

 
12,121

Total derivative assets

 
12,319

 
3,488

 
15,807

 
 
 
 
 
 
 
 
Total trading assets (included in other assets)
21,261

 
12,319

 
17,889

 
51,469

 

 


 


 


Available for sale securities:
 
 
 
 
 
 
 
Equity securities
6,152

 

 
48

 
6,200

U.S. Treasury securities and U.S. government agencies

 
51,846

 

 
51,846

Obligations of state and political subdivisions

 
55,145

 

 
55,145

Obligations of foreign governments

 
2,926

 

 
2,926

Certificates of deposit
892

 

 

 
892

Asset backed securities

 
1,531

 

 
1,531

Corporate bonds

 
66,552

 

 
66,552

 Total available for sale securities
7,044

 
178,000

 
48

 
185,092

 
 
 
 
 
 
 
 
Mortgage loans held for sale

 
93,532

 

 
93,532

 
 
 
 
 
 
 
 
Investments in loans, at fair value:

 


 


 


Corporate loans

 
52,774

 
222,830

 
275,604

Non-performing loans

 

 
48,899

 
48,899

Other loans receivable

 
125

 
1,284

 
1,409

 Total investments in loans, at fair value


52,899


273,013


325,912

 
 
 
 
 
 
 
 

F-23



TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2016
(in thousands, except share data)

 
As of March 31, 2016
 
Quoted prices in
 active markets
Level 1
 
 Other significant
 observable inputs
 Level 2
 
 Significant unobservable inputs
Level 3
 
Fair value
Total financial instruments attributable to Non-CLOs included in consolidated assets
28,305


336,750


290,950


656,005

 
 
 
 
 
 
 
 
Financial instruments included in assets of consolidated CLOs:
 
 
 
 
 
 
 
Investments in loans, at fair value

 
145,085

 
551,279

 
696,364

Total financial instruments included in assets of consolidated CLOs

 
145,085

 
551,279

 
696,364

 
 
 
 
 
 
 
 
 Total
$
28,305


$
481,835


$
842,229


$
1,352,369

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Trading liabilities:
 
 
 
 
 
 
 
U.S. Treasury securities
$

 
$
20,345

 
$

 
$
20,345

Total trading securities


20,345




20,345

 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
Interest rate swaps

 
3,602

 

 
3,602

Forward delivery contracts

 
92

 
11

 
103

TBA-mortgage backed securities

 
612

 

 
612

Total derivative liabilities

 
4,306

 
11

 
4,317

 
 
 
 
 
 
 
 
Total trading liabilities (included in other liabilities)


24,651


11


24,662

 
 
 
 
 
 
 
 
Contingent consideration payable

 

 
952

 
952

 
 
 
 
 
 
 
 
Preferred notes payable